Ladies and gentlemen, thank you for standing by. Welcome to the MetLife Fourth Quarter and Full Year 2022 Earnings and Outlook Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Before we get started, I refer you to the cautionary note about the forward-looking statements in yesterday's earnings release and to risk factors discussed in MetLife's SEC filings. With that, I will turn the call over to John Hall, Global Head of Investor Relations.

Thank you, operator. Good morning, everyone. We appreciate you joining us for MetLife's fourth quarter 2022 earnings and near-term outlook call. Before we begin, I'd point you to the information on non-GAAP measures on the Investor Relations portion of metlife.com, in our earnings release and in our quarterly financial supplements, which you should review. On the call this morning are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer. Also participating in the discussion are other members of senior management. Last night, we released a set of supplemental slides which address the quarter as well as our near term outlook. They are available on our website. John McCallion will speak to those supplemental slides in his prepared remarks if you wish to follow along. An appendix to the slides features outlook sensitivities, disclosures, GAAP reconciliations and other information, which you should also review. After prepared remarks, we will have a Q&A session. In light of the busy morning, Q&A will promptly end at the top of the hour. [Operator Instructions] With that, over to Michel.

Thank you, John, and good morning, everyone. As I look back on 2022, I am pleased with the relevance of our Next Horizon strategy and how it positioned us to absorb the challenges presented in the year and to succeed going forward. 2022 was a year still affected by COVID, and we incurred an impact of more than $650 million pretax. For the year, we saw pretax variable investment income come in 19% lower than our outlook expectation on lower returns in our private equity portfolio. And from a macroeconomic perspective, we felt pressure from rising inflation, a falling equity market and a stronger dollar. Yet despite these hurdles, MetLife performed. Our strategy proved its resilience and our consistent execution driven by discipline and determination paid off in 2022. We delivered an adjusted return on equity of 12.3% for the year, meeting our target for this important metric. We pushed ourselves, driven by our efficiency mindset and succeeded in posting a full year direct expense ratio of 12.2%. Our strong 2022 free cash flow generation enabled us to hit our 2 year free cash flow ratio target of 65% to 75%. This fueled the return of $4.9 billion of cash to our shareholders. And finally, we ended the year with $5.4 billion of cash and liquid assets at our holding companies, arming us with ample financial flexibility. With our great set of market-leading businesses, good growth prospects around the world and the strength of our balance sheet and our free cash flow generation, I believe MetLife is very well positioned for the future. When we established our Next Horizon strategy at the end of 2019, we made several 5 year commitments against which we measure ourselves and, more importantly, hold ourselves accountable. I am pleased with our success to date…

Thank you, Michel, and good morning. I will start with the 4Q '22 supplemental slides, which provide highlights of our financial performance and update on our cash and capital positions and more detail on our near-term outlook. Starting on Page 3, we provide a comparison of net income to adjusted earnings in the fourth quarter and full year. Net income in 4Q of '22 was $1.3 billion or $88 million higher than adjusted earnings. Net investment gains in the fourth quarter were primarily driven by real estate sales, which were partially offset by losses on the fixed maturity portfolio due to normal trading activity in a rising rate environment. Credit losses in the portfolio remain modest. In addition, we had net derivative gains primarily due to the weakening of the U.S. dollar in the quarter. For the full year, net derivative losses accounted for most of the variance between net income and adjusted earnings, primarily due to higher interest rates in 2022. Overall, our hedging program continues to perform as expected. On Page 4, you can see the fourth quarter year-over-year comparison of adjusted earnings by segment, excluding $140 million of notable tax items that were favorable in the fourth quarter of '21 and accounted for in Corporate and Other. Adjusted earnings in 4Q of '22 were $1.2 billion, down 28% and down 26% on a constant currency basis. Lower variable investment income drove the year-over-year decline, while higher recurring interest margins and favorable underwriting were partial offsets. Adjusted earnings per share were $1.55, down 23% year-over-year and down 21% on a constant currency basis. Moving to the businesses, starting with the U.S. Group Benefits adjusted earnings were $400 million versus $20 million in 4Q of '21, primarily due to significant improvement in underwriting margins aided by lower COVID-19 life…

Hi. Thank you. So we've recently seen an increase in the number of layoffs announcements, particularly from larger employers. So I was just hoping you could talk about what you're seeing from your clients, particularly in the group business and then what you're assuming for employment and wage inflation in your 4% to 6% PFO growth outlook?

Thanks, Erik. It's Ramy here. So the short answer is we're not seeing any impacts across our group business today; in fact, quite the opposite. So maybe let me give you just a couple of overall points before I get into the specifics of our business. So if you think about a recession and a potential recession, as you know, no two recessions are the same, so sitting here, it's really difficult to speculate how a potential recession scenario could play out in terms of the employment levels and particularly as to which segment of the economy that would impact. And the second point, before I get into the specifics of the business, we've all seen the headlines. But overall, we're still sitting in a pretty tight labor market with pretty - with low unemployment levels. And you also have to remember when you look at group benefits, their underlying long-term trends with respect to the dynamics in the workplace, which really favor benefits, and we see those trends continuing thought out [ph] in the future. So if you think about specifically our franchise, while we're certainly not immune to a downturn, there are a number of important mitigants in our business which make us fairly resilient from a top line and a bottom line perspective and, I would say, give us real confidence sitting here today with respect to our guidance ratios in terms of PFO growth. So let me just give you kind of a bit of a sense of what gives us that confidence. From a top line perspective, our book is highly diversified by industry and by size of employer, which limits our diversification, our exposure to any single segment. So really diversification is our friend here and is crucial to our ability to perform. As…

Great. Thanks, Ramy. And then my second question was just on what's enabling the earnings for MetLife Holdings to be so resilient despite the decline in PFOs and then the lower equity markets that we saw last year? I guess related, at what point should earnings start to follow the PFOs lower?

Good morning, Erik. It's John. Great question. We have had some resiliency in our runoff business here. So we did provide a guidance raise of 1 to 1.2. Let me start with just PFO decline versus earnings. So as I referenced in my opening remarks, one aspect of LDTI is for our VAs, we do move some of the fees down below the line. That's a revenue decline, but it's not an earnings decline. The way we have - our policy has been that we've attributed fees to the guarantees. And to the extent that they're below the line, we would put 100% of those fees below the line. So as you move, we have a number of SOP 03-1, which is kind of the accrual-based accounting, as you move them down below the line, so does the claims. So you see this like this kind of breakage between revenue decline but earnings staying flat. And then we did have - this is probably one of the businesses with a marginal positive from LDTI. And so that's probably another item. And then thirdly, I think it's the optimization efforts. Now the team has done a great job and continue to look for ways to find improvements around expenses, around contracts. And I think, all in all, we think with the guidance in terms of equity outlook, 1 to 1.2 is a good range.

Thank you.

And our next question is from Tom Gallagher with Evercore. Please go ahead.

Good morning. Hey, sticking with Holdings, been a few of your peers like Aegon and Ameriprise saying they're going to pass on doing VA risk transfer deals because the pricing didn't work. I'm wondering whether your view has changed at all or maybe just give an update on what are you thinking about a potential risk transfer deal for Holdings. Has the environment changed there or pricing changed at all?

Good morning, Tom. It's John. Yes, I don't think any update or change for us. I think we've been pretty transparent about this. This is not an easy solution, particularly when you're talking about a reinsurance arrangement. It is complex. I think particularly when it's a reinsurance, you're looking for a good partner and you're looking for to ensure that not only is it beneficial for us, but beneficial for them. And so there is a - you do have to look for ways for common ground. And sometimes that works out, and sometimes it doesn't. It hasn't changed our perspective on optimization. And so I think things are the same for us, so which is we continue to look for ways to optimize internally and we are, and I just referenced that on the previous comment, and that's helped us be resilient in terms of our earnings. And at the same time, we're still going to look and speak and converse with third parties and look for ways to see if we can accelerate the release and runoff of that block in an appropriate way. And if we can, we would do a deal, if we can't, then we'll continue to optimize internally.

Okay. Thanks. And just a follow-up on, if I look at your group life and individual life mortality experience within Holdings, are you seeing worse experience versus pre-pandemic levels right now? Or are you more or less back to those types of levels? The reason I ask is if you look at the broader CDC data for all-cause mortality, it still looks to me like it's running around 5% to 10% worse. Yet I look at your guidance, I look at the results you've had for the last three quarters, you're kind of back to your targets. So I'm just curious what you're seeing. Maybe it's the insured population experience is better than general population, but any way you can kind of reconcile that? Thanks.

Yes, I mean it's - you've got to really factor in a lot of different, call it, lenses as you go from an aggregate data to an insured population or a specific book of business. I would say in terms of what we're seeing this quarter, it's very much a shift to an endemic. With respect to COVID, we see continued reduction in the number of deaths below 65, which also reduces the severity of any potential impacts from COVID. But overall, you really should think about this moving to an endemic environment, one that we've priced for and, therefore, we feel pretty good about our guidance range and going back to the midpoint of the range on an annual basis. You'll still see some of the seasonality we've historically seen. So think about Q1 as typically being mortality heavy, which is - was the same dynamic that played out pre-COVID from a mortality perspective.

Okay, thanks.

Next, we go on to Ryan Krueger with KBW. Please go ahead.

Hi, thanks. Good morning. I had a question on the RIS spread outlook. I guess more so to the extent you can comment beyond 2023 and how to think about the interest rate cap, how much they're contributing in '23 and how we should think about them rolling off beyond '23?

Good morning, Ryan. It's John. So as we mentioned, we're raising the guidance. And I think just to kind of frame it in terms of if you use fourth quarter, we're at about 112 ex-VII. If you add 10 for LDTI, which we referenced, it's more of a mechanic than it is necessarily an earnings change or run rate change. And then on top of that, you add kind of a normal VII balance, that gets you to the range we gave. And we are benefiting from the caps. I mean this is really how we constructed the portfolio is to put these in place to address a short-term headwind of rising rates and really rising short-term rates to allow for the longer end of the curve for the rollover and reinvest to start to manifest itself in portfolio yield. So it's all part of the plan. They'll be pretty healthy in '23. They'll start to roll off over the next 2 plus years, and that should give us some time to allow for the longer end of the curve to kind of improve in terms of contribution. We typically stick to '23 - to 1 year, and there's a reason for that. I mean, if you - if we try to predict more than 1 year, I think we would have been wrong every time. So I think we'll stick with that.

Okay. Got it, thanks. And then I guess on capital deployment and are you - I guess there's a lot of talk about the risk of recession. I mean at this point, have you - are you - is there anything about the economic outlook that would lead you to pull back some on capital deployment at this point? Or are you kind of viewing as a somewhat status quo situation for now?

Yes. Hi, Ryan. It's Michel. I mean I would say the short answer is no, no change in philosophy in our approach. And I might sound like a broken record here, but that's probably a good thing. So from our standpoint, the approach is that beyond supporting organic growth and in the absence of strategic accretive M&A, excess capital belongs to shareholders. And we've defined that as cash and equivalents at our holding companies above our liquidity buffer of $3 billion to $4 billion. And we do expect to migrate back to those levels over time. But just given the environment, I think having the financial flexibility that being above that range offer is not a bad thing. We've bought back $3.3 billion in 2022, an additional $250 million in January. And we have $900 million left on our current authorization. And as we've done in the past, we're going to continue to manage the authorization deliberately and in a consistent manner, I would say. So from that perspective, no change in terms of approach or philosophy.

Thank you.

And our next question is from Jimmy Bhullar with JPMorgan. Please go ahead. Mr. Bhullar, do you have your phone muted by chance. We will move on to the next person, one moment here. We'll move on to Alex Scott [Goldman Sachs]. Please go ahead.

Hey, good morning. First one I had is just on LDTI, could you provide an update on how book value is impacted as we sort of move over to that accounting as of year-end? And the reason I asked is just I want to better understand the ROE guidance that you've provided as part of your outlook. And then maybe if you can comment at all on how sensitive that will be to interest rates as we think through declining rates in the first quarter?

Good morning, Alex. It's John. So we gave a range before, and we'll be providing a point estimate as we file our 10-K in the middle of that range was, call it, all in about a 22.5 change in total equity and about a $5 billion, so $22.5 billion and a $5 billion change in book value ex-AOCI, excluding FCTA. That was at 1/1/21. Since that time, obviously, a lot has changed in terms of economic and interest rate environments. And so I think if you were to compare to year-end this year of '22, the delta should be much different or smaller, at least, certainly, on book value ex-AOCI would be about 2 - a little less than a $2 billion, call it, impact on book value ex-AOCI. And then if you include AOCI, it actually flips a little bit to $2 billion positive from the overall $22.5 billion negative to GAAP equity. So hopefully, that helps.

Yes, that's very helpful. Thank you. And then the second one I had is on LatAm and the outlook. You guys have had really strong growth there. How influenced has it all been by the macro environment and the employment in Mexico, which candidly am a little less doubt [ph] in on myself? And I just wanted to understand like, to what degree that's been fueling things and what that could look like if it more levels off or is not as robust as it's been? And then maybe also if the Chile pension reform does go into effect in 2024? Would that change your view on the growth rates on sort of the outer years of the guidance you gave?

Okay. Hi, Alex. This is Eric. Let me take the first question regarding the LatAm outlook. So as you mentioned, and you've seen 2022 results and our near-term guidance, we're excited about our prospects in Latin America for a number of reasons. And let me put things in perspective. So we, as you know, we have a strong franchise across the region. We have a significant footprint in three of the largest insurance markets across LatAm. We are market leaders with a very strong brand in Mexico and Chile, and we have a fast-growing business in Brazil. So in addition, the market in the region has significant potential for three reasons in addition to the one that you mentioned. But the three core reasons that are really pushing things forward are, one, the insurance penetration rates remain very low. We are also seeing heightened protection awareness resulting in increased demand for our products. We're also observing an increased expectations from customers for more of a digital and seamless experience, and this is leading to a flight to quality that I mentioned during last year. And these evolving customer needs have been met by our franchise because we have invested significantly in our digital transformation over the past few years, and that digital transformation in both sales and service levels is now paying off clearly. And in parallel, we've been expanding and diversifying our distribution and product reach by growing bancassurance, direct marketing channels, while continuing to strengthen and grow our retail and group business across the region. The good example of that diversification strategy in Mexico where we had a record top and bottom line here in 2022. So we've been also expanding successfully in the private business in both retail and group while continuing that strong franchise that you know very well in worksite government. So all in all, I think there are market factors that are helping, but the strength of our franchise and our strategy is certainly positioning us well for the future and moving forward. So I hope this helps on the LatAm question. And I'll pass it to Michel regarding the Chile view.

Yes. I mean the thing I would say about Chile is that I think all in all, we feel better about the environment. The pension reform is going to play out over, say, a number of months. And we'll have to see how things turn out. But all in all, I think compared to maybe six months ago, I would say the environment is better, more favorable.

Got it. Thank you.

And we will go back to the line of Jimmy Bhullar with JPMorgan. Please go ahead. Mr. Bhullar, we are still unable to hear you. We will move on to Suneet Kamath [Jefferies]. You may go ahead.

Hi. Can you hear me? A - Michel Khalaf Yes. Suneet, go ahead.

Okay, great. Perfect. So my first question, just on VII, I think I know the answer, but I figured I'd ask anyway. It looks like you've kept your return assumption consistent despite the economic uncertainty that you've talked about on this call. Is that just for the simplicity of being consistent with the past? Or is that at all informed by what you're hearing from your private equity partners?

Hi, Suneet. It's Steve. Thanks for the question. And this really reflects the fact that we don't want to try and predict near-term market quarterly or annual returns. This really reflects our long-term experience for the asset class and then therefore our expectation going forward. So that's why I think if you go back, it's been 12%, 3% a quarter as long as I can recall. And again, it reflects the fact that we know that - a couple of things. One is that there is volatility in the returns. But basically, our PE portfolio has generally moved directionally in line with the broad markets. If you can look at the fourth quarter, what happened, we had basically strong kind of broad market returns. NASDAQ was down a little bit. I'm sure that will reflect its way through the portfolio as well. The key, though, is despite any volatility we see in the returns on the portfolio, we're also getting very solid cash distributions. And last year, we had over - about $2.5 billion of cash distribution. As you look at the last 5 years, they've totaled $9 billion. So it really is a very reliable portfolio in that respect as well. And I think a lot of it just reflects the diversification in the portfolio. I mean we've said a number of times, we're very diversified by strategy, by manager, by vintage. Yes, LBOs and BC are the biggest part of the portfolios, but we also have significant investments in specialized strategies like special situations, energy, power and the like. So all in all, our expectations really reflect the long-term experience we've seen in the portfolio that represents the strong diversification we have.

Got it. That's helpful. And then, I guess, for John, it looks like you were able to use this Japanese reinsurance transaction to help solve for some of the uneconomic pieces of the SMR. Should we be thinking about this as another tool that you have going forward in terms of capital optimization? Or was this really just to solve that issue?

Good morning, Suneet. Yes, I think you've done a nice job summarizing it. It's a tool in the toolbox. We - it's not our only. We did use it to solve that situation. It was - in the fourth quarter, we executed an internal reinsurance transaction, which improved the ratio by approximately 250 points. And so - and also remember, there is two other things. One, rising rates are good for this business. So that's important to remember from an economic perspective. Second is the solvency regime is meant to be replaced in a few years time and move to a more economic solvency framework that will better reflect the economics. So this is really to deal with, I'll say, a temporary situation. And ultimately, I think these tools allow us to have no concerns over capital generation or dividend capacity.

Okay, thanks.

And ladies and gentlemen, we have time for one last question, that's from Elyse Greenspan with Wells Fargo. Please go ahead.

Thank you. Good morning. My first question, with your guidance and comments on Holdings, you guys have a pretty good handle on how LDTI will impact the income statement. Can you help give us a sense of the total impact to net from LDTI on adjusted earnings as well as on net income?

Good morning, Elyse. It's John. As I mentioned, I think our summary around earnings run rate is there's a few puts and takes, but net-net for the firm overall, run rate is intact for adjusted earnings. Net income will probably become, I'd say, directionally smoother than it has been. It's probably the best way to describe it and you'll probably - and you'll see that when we provide our restated QFS in kind of early April. And you'll see that there's a bit more symmetry between net income and adjusted earnings. But it's - there's still some volatility and fluctuations that you'll see. But net-net, it should be directionally better.

Okay. Thanks. And then in terms of PRT, can you just give us a sense of your outlook for deal volume during '23? And would you expect to see seasonality during the quarter as I think typically sometimes you've seen heavier activity to end the year?

Elyse. So as you know, we had a record year last year with respect to PRT. And sitting here today, we're still seeing a pretty healthy pipeline given funded status of pension plans. And we're seeing that pipeline also geared towards the jumbo end of the market, which is the place where we compete the most and where we focus on. The seasonality has largely dissipated. If you looked at the timing of the deals over the last few years, we've seen less seasonality. We've seen more deals earlier on in some cases and more these later on. So I wouldn't speculate on the seasonality, but the pipeline is certainly healthy.

Thank you.

And ladies and gentlemen, we do have no more time for questions. I'll turn you back to John Hall, Head of Investor Relations, for closing comments.

Great. Thanks, everybody, for joining us today, and have a good day.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.